Attention UPA, job cuts ahead

One of the biggest mysteries of the past 12 months in India has been the lack of massive job cuts. Many of us who carry deep scars from the swift and ferocious job cutting of 2009 and have worried about the policy and growth malaise spilling over to labour markets have been pleasantly disappointed despite the anaemic employment outlook for the former superstars of telecom and financial services.

Why? Some people believe that that the labour markets have been held up by a curious divergence between consumer and corporate confidence. Corporate India may feel under siege but many newly-minted consumers are unwilling to put the toothpaste back in the tube just yet.

Others believe that the 2009 meltdown hit a generation of managers who had never experienced a downturn; their panicked overreaction led to cutting muscle in addition to fat that left them unable to take advantage of the quick recovery. This time they are determined to act with caution rather than haste. But the GDP slowdown and economic mood means that employers are starting to peek over a structural job cliff that will make the cyclical 2009 job cuts look like a walk in the park.

India has a problem. This problem — slightly amplified by European chaos — is largely made in India. At a strategic level this problem began in 1991 by defining reforms as purely economic rather than including governance, regulatory and administrative structures.

But at a tactical level it arises from a government whose actions suggest a strong conviction that markets take too long and poverty reduction comes from a bigger state. Unfortunately and expectedly, this regime of rights and high government spending has not reduced poverty, not got people off farms, and not improved productivity.

The NREG Error

NREG should have been the anaesthetic before surgery but was conceived as the surgery itself. RTE should have been focused on school learning outcomes but fights yesterday's war of enrollment. And the desperate need for tax resources to pay for the fiscal excess is creating a hostile tax regime. The last few years demonstrate that the diet coke approach to poverty reduction — the sweetness without the calories — does not work because lower poverty, higher wages and more jobs depend on low inflation, high growth and fiscal prudence.

India's strengths have not changed but expectations — some of them unrealistic to start with — currently lay buried under a haze of indecision, distrust of markets and belief in a big state.

But these things can change quickly; most entrepreneurs intuitively recognise that the most important management book in the world is GB Shaw's Pygmalion — adapted into the movie My Fair Lady — which demonstrates the power of expectations.

Policy makers agree; Keynes called them "Animal spirits". If it is true that India does not change for a better option except when she has no option, the current situation creates conditions for bold action.

Our demographic dividend — 10 lakh people joining the labour force every month for the next 20 years — is ready for prime time. China is running out of farm labour and wages are rising rapidly to reflect higher productivity — it now takes their economy 20 workers to produce the same GDP that 100 did in 1980. And the rupee devaluation — painful as it is for our imports — makes our exports competitive.

Political Orphan

India's labour market are desperate for transformation with four variables exactly where they were in 1991 — 12% manufacturing employment, 50% self-employment, 90% informal employment and 58% agricultural employment.

Employment is a policy orphan because we don't have a Ministry of Employment. But economic reforms are not only about offering our youth the strength and self-esteem that comes with a job but nothing addresses a crisis like jobs.

Many of them got opportunities as growth forced corporate India to lower hiring standards in the last decade. We also now know that the most jobs in the next two decades will be in construction, hospitality, healthcare, education, sales and customer service.

Of course manufacturing jobs would be welcome- the National Manufacturing policy proposes 100 million of them — but unfortunately the current trajectory of declining employment elasticity, higher capital intensity, and dysfunctional labour laws don't add up to a 100 million dent in our manufacturing employment. The job creation agenda is hardly unknown, small or easy but the lowest hanging fruit are building infrastructure (power and roads first) and overhauling our 3E (education, employability and employment) regime.

Shoot Again

Governments do not reduce poverty; jobs do. Governments do not create jobs but history reminds us that they can destroy or facilitate them. This government took a solid stab at using a larger — rather than smarter — state to reduce poverty.

This has had unintended but nonetheless dangerous consequences for India's economic renaissance. As the current economic slowdown threatens to become a job meltdown, we must remember the marvellous Greek concept called hamartia — which is the mistaken shot. You shoot your arrow at the target — if you miss, what do you do? You take better aim next time. The next two years offer this government an opportunity to take fresh aim at an economic and political strategy pivoted around private sector job creation. Any takers?